Industry profits shrink for fifth straight month on mainland

Mainland steel smelting and petrochemicals lead declines, raising pressure for official support

PUBLISHED : Friday, 28 September, 2012, 12:00am
UPDATED : Friday, 28 September, 2012, 3:29am


Earnings at the mainland's industrial companies fell for the fifth consecutive month last month, reflecting the impact of weaker overseas demand and slowing domestic growth.

Profits at companies surveyed with annual sales of at least 20 million yuan (HK$24.6 million) fell 6.2 per cent to 381.2 billion yuan from the same month a year earlier, the National Bureau of Statistics said.

For the year's first eight months, total profit of the firms, from 41 sectors, was 3.06 trillion yuan, 3.1 per cent lower than in the year-earlier period.

The declines were led by the steel smelting and processing and petrochemicals industries, while power generation, food processing and vehicle manufacturing recorded increases in profit.

After turning profits at the same time last year, companies engaged in oil refining, nuclear fuel processing and processing of coal used in steel smelting reported losses.

Last month's drop in earnings was steeper than the 5.4 per cent decline in July and 1.7 per cent dip in June. In the year's first eight months, only March recorded profit growth.

The data's release adds pressure on the central government to launch more measures to support slowing economic growth, which fell to 7.6 per cent in the second quarter, the lowest in three years.

A survey commissioned by HSBC shows mainland manufacturing activity has shrunk this month for the 11th consecutive month.

After cutting interest rates in June for the first time in three years, followed by another cut in July, the central bank has refrained in the two months since from more monetary easing to support investment and business activity. Between November and May, it lowered reserve requirements for banks three times, so that they could lend more to stimulate economic activity.

Conita Hung Lai-ping, a director at Amicus Asset Management, said she did not see any sign of developments that might spark an imminent turnaround in industrial profits on the mainland.

"The impact of weak demand from the United States and Europe for mainland exports looks set to continue," she said. "While Beijing has announced the approval of major infrastructure projects, it remains to be seen whether they will be able to get the financing they need and start construction."

Given the pause in the introduction of major macroeconomic policies in the months before the once-in-a-decade transition in political leadership that will be completed in March next year, Hung said it was hard to tell whether mainland economic growth would reach a bottom in the fourth quarter, as any major stimulus might come only after the new leaders had settled in.